Best Credit Cards for Beginners
Choosing a credit card for the first time can be an overwhelming experience. Explore our top credit card picks for beginners, some of which are from our partners.
Having a credit card account is a good way to get on the fast track toward a healthy financial life. Building credit with a starter credit card can help you rent an apartment, qualify for the best rates on insurance, and finance a car or home on the best terms at the lowest interest rate.
But not all cards are fit for a beginner, as many of the best cards require applicants to have high incomes and established credit histories. Below, we’ll go through the best offers on the market based on the likelihood you can get approved for a card, and whether or not a card offers key features (like FICO® Scores for free) that we think are most important to people who are new to credit cards.
Great for: Highest cash-back card for students Discover it® Student Cash Back
Our Bottom Line
Student credit cards are a common first credit card for many. With double cash back in the first year and no annual fee, this is a best-in-class pick.Read Full Review
Credit Rating Requirement:
What we Like:
- Rotating bonus cash back
- Double cash back in the first year
- No annual fee
- FICO® Score for free
- Annual Fee: $0
- Regular APR: 15.24% - 24.24% Variable
- Intro APR: Purchases: 0%, 6 months Balance Transfers: 10.99%, 6 months
- INTRO OFFER: Discover will match ALL the cash back you've earned at the end of your first year, automatically. There's no signing up. And no limit to how much is matched.
- Earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate. Plus, earn unlimited 1% cash back on all other purchases - automatically.
- Good Grades Rewards: $20 statement credit each school year your GPA is 3.0 or higher for up to the next 5 years.
- No annual fee. No late fee on first late payment. No APR change for paying late.
- Get 100% U.S. based customer service & get your free Credit Scorecard with your FICO® Credit Score, number of recent inquiries and more.
- Freeze It® on/off switch for your account that prevents new purchases, cash advances & balance transfers in seconds.
- Get an alert if we find your Social Security number on any of thousands of Dark Web sites.* Activate for free.
- 0% intro APR on purchases for 6 months, then the standard variable purchase APR of 15.24% - 24.24%.
Great for: Secured card with cash rewards Discover it® Secured
Our Bottom Line
If you don't have a credit history or are rebuilding credit, this card should be on your shortlist for its modest security deposit and premium rewards.Read Full Review
Credit Rating Requirement:
What we Like:
- Low security deposit
- No annual fee
- FICO® Score for free
- Bonus cash back
- Annual Fee: $0
- Regular APR: 25.24% Variable
- Intro APR: Purchases: N/A Balance Transfers: 10.99%, 6 months
- No Annual Fee, earn cash back, and build your credit with responsible use.
- It's a real credit card. You can build a credit history with the three major credit bureaus. Generally, debit and prepaid cards can't help you build a credit history.
- Establish your credit line by providing a refundable security deposit from $200-$2500 after being approved. Bank information must be provided when submitting your deposit.
- Automatic reviews starting at 8 months to see if we can transition you to an unsecured line of credit and return your deposit.
- 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases every quarter, automatically. Plus, earn unlimited 1% cash back on all other purchases.
- Get 100% U.S. based customer service & get your free Credit Scorecard with your FICO® Credit Score
- We automatically match all the cash back you've earned at the end of your first year.
- Get an alert if we find your Social Security number on any of thousands of Dark Web sites.* Activate for free.
Great for: Low security deposit Capital One® Secured Mastercard®
Our Bottom Line
This card includes one of the lowest security deposits we've come across in the secured category, making it a best-in-class pick if you're wanting to build or rebuild credit while reducing out-of-pocket costs.Read Full Review
Credit Rating Requirement:
What we Like:
- No annual fee
- Security deposit starts at $49
- Annual Fee: $0
- Regular APR: 26.99% Variable
- Intro APR: Purchases: N/A Balance Transfers: N/A
- No annual fee, and all the credit building benefits with responsible card use
- Unlike a prepaid card, it builds credit when used responsibly, with regular reporting to the 3 major credit bureaus
- You will get an initial $200 credit line after making a security deposit of $49, $99, or $200
- Get access to a higher credit line after making your first 5 monthly payments on time with no additional deposit needed
- Easily manage your account 24/7 with online access, by phone or using our mobile app
- It's a credit card accepted at millions of locations worldwide
Great for: Fair credit Capital One® Platinum Credit Card
Our Bottom Line
No annual fee, no foreign transactions fees, and no late payment penalty APR round out the lineup of valuable perks in this popular card.Read Full Review
Credit Rating Requirement:
What we Like:
- No annual fee
- Access to a higher credit line
- No penalty APR
- Annual Fee: $0
- Regular APR: 26.96% Variable
- Intro APR: Purchases: N/A Balance Transfers: N/A
- Pay no annual fee
- Get access to a higher credit line after making your first 5 monthly payments on time
- Fraud coverage if your card is lost or stolen
- Use online banking to access your account, even from your smartphone, with our mobile app
- Pay by check, online or at a local branch, all with no fee - and pick the monthly due date that works best for you
- Get access to your account 24 hours a day, 7 days a week
- Help strengthen your credit for the future with responsible card use
How we picked the winners
The criteria we use to pick the best cards doesn’t vary much from our view of what makes a great credit card in any category. Justifiable costs and flexible, transparent cards are what we covet. Here’s more on the major ranking factors for inclusion on this list:
- No annual fees -- There are too many high-quality offers on the market without an annual fee to even consider paying an annual fee. We’d even go so far as stating that beginner credit cards charging an annual fee are taking advantage of cardholders.
- FICO® Score for free -- First-time credit cardholders should be focused on building and monitoring their credit history. Which is why a free credit score is heavily influences our view of an offer.
- APRs -- From the ongoing APR (or annual percentage rate) to promotional balance transfer and purchase benefits, the most competitive offers include compelling offers.
Why you can trust us
As personal finance nerds and credit card enthusiasts, we’ve used credit cards to collect cash back, go on vacations to places we never thought possible, and build credit scores that have helped us secure the best rates on mortgages, car loans, and other types of financing. Together, we’ve sorted through more than 300 card offers on 6,000 variables to find the best possible cards to feature here at The Ascent.
What’s a beginner credit card?
A beginner credit card is one that offers high odds of approval for people who have no credit or limited credit history. To that end, beginner credit cards are typically secured credit cards, student credit cards, or low-credit-limit unsecured cards, rather than high-end rewards or travel cards that have steeper approval criteria.
There are two broad types of credit cards for beginners:
- Beginner unsecured cards -- These cards give cardholders small credit limits (usually $250 to $1,000) to use without putting up any collateral. The category encompasses student and regular credit cards. Issuers don’t take much risk in giving an applicant a credit limit of $1,000 or less, so approval rates are high for these cards, even if the applicant has no credit history. Over time, with several months of on time payment history, card issuers typically reward cardholders with higher credit limits and offers for higher-tier cards, making them a great entry point into using credit responsibly.
- Secured cards -- These cards work just like any other credit card, but they require applicants to put down a deposit to open an account. The deposit (usually less than $200) is used as collateral to protect the lender if you don’t pay as required. Secured cards report your account information to the credit bureaus, helping you build credit. Our favorite picks in secured cards eventually “graduate” to an ordinary unsecured card. This happens after several months of on time payments, at which point the issuer returns the deposit collateral to the cardholder.
Features a credit card for beginners should offer
Credit cards that are designed for beginners usually have a few features or perks that make them better suited for people who are new to credit cards. Here are a few features we think are most important for first-time card users.
- No annual fee -- Ideally, your first credit card is one that you’ll want to keep open forever, helping you extend the age of your credit history with each passing month. We think the best first time credit card is one that doesn’t have annual fees, so that you won’t have to pay every year just to keep it open.
- Lower credit limits -- Credit cards can be powerful financial tools, but in the wrong hands, they can be a precursor to costly credit card debt. A low credit limit increases your odds of approval, but it also reduces the risk you get in trouble if you later find out that a credit card isn’t right for you. Over time, card issuers often increase their cardholders’ credit limits, so starting with a low-limit card doesn’t mean you’ll be stuck with a low credit limit forever.
- FICO® Scores for free -- Some credit cards offer free access to a FICO® Score, which we think is a useful feature for people just getting started in the world of credit. Most free credit score services give you a FAKO score, or an approximation of your true FICO® Score. We think the ability to track your real FICO® Score is a big advantage.
- Rewards -- Rewards aren’t a make-or-break feature, since the primary purpose of a beginner card is to help you build a credit score and qualify for better terms on loans and cards later. That said, if you can score rewards from your first credit card, it’s certainly not a bad feature to have.
- No or low security deposit -- If a card is a secured card (secured cards require collateral to open an account), we believe the deposit amount should be lower rather than higher. Cards that offer a $200 credit limit in exchange for a deposit of $200 or less are ideal. You shouldn’t have to empty your bank account to open a credit card account.
Beginner credit card checklist
Are you a good candidate for a beginner credit card? If the statements below apply to you, it may be a good time to start thinking about applying for your first credit card.
1. You have no or limited credit history
Credit cards for first timers typically have relaxed underwriting standards, and won’t turn you down just for having no or limited credit history.
2. You have limited income
Beginner cards typically have lower credit limits, so the card issuer can reasonably approve people who have limited incomes. (The median household income in your city is a good reference point for seeing how your income stacks up.)
3. You’re worried about getting approved
Getting denied for credit isn’t fun, and applying for multiple cards can hurt your credit score when the inquiries start showing up on your credit report. Applying for a card known for lower barriers to approval is a good way to maximize the odds your application is approved. Secured cards generally offer the highest approval odds, offering the closest thing to “guaranteed” approval.
4. You won’t carry a balance
Credit cards are a great way to pay, but they’re a bad way to borrow money. The typical credit card carries double digit interest rates, which means that even a small amount of credit card debt can quickly become a financial nightmare. Always pay off your balance in full each month by paying the statement balance to avoid any late fees or interest charges.
5. You may need to borrow to buy a home or car in the future
If you can see yourself applying for a loan to buy a home or car in the next few years, it’s a good time to start thinking about building up your credit report and credit score by opening up a credit card. Having a credit score can make applying for other types of loans easier, and help you qualify for the best possible interest rates.
Why credit cards are a great way to pay
When the first credit cards were rolled out in the 1950s, they were more of a luxury than a necessity. That’s changing, and we’d argue that credit cards are becoming almost as necessary to your daily financial life as having a basic savings or checking account.
Here are three reasons why we think you should have a credit card, even if you don’t use it much.
- It’s a “cheat code” for good credit -- Having just one credit card account in good standing can help you achieve a credit score in excess of 800, the point at which you’ll qualify for the best rates and terms on any kind of financing. One of the easiest ways to get ahead in the credit score game is to open a no-annual-fee credit card, use it sparingly, and keep it open for life. Having years of good credit history will pay dividends later if you need to apply for financing to buy a car, home, or to go back to school.
- You’ll need one to rent a car or a hotel room -- Try paying for a hotel room or rental car with cash or debit. It won’t be easy. Many companies require customers to make big cash deposits, supply more forms of identification, and even bring a recent utility bill to rent a car with a debit card or cash. Credit cards are the preferred way to pay for rental cars and hotel rooms, period.
- More fraud protection -- Credit cards offer more protection against fraud than any other payment type. Cash can be lost or stolen. In the worst case, a thief can use your debit card to empty your checking account, making you 100% responsible for the loss if you don’t report it in time. In contrast, you are only liable for up to $50 of losses due to fraudulent charges on a credit card, and even then, virtually all issuers will simply eat the full loss themselves rather than pass on a $50 liability to a concerned customer.
How to use your credit card for best results
After you’re approved for a starter credit card, you’ll want to be sure to use it in such a way that you get the most benefit to your credit score. Here’s our six-step guide to using your first credit card so that it works for you, not against you.
- Keep your balances low -- The whole point of having a credit card is being able to use it, but be careful not to go overboard. It’s best to keep your balances under 30% of your credit limit at all times to get the best possible credit score. Many people simply set up their card to make an automatic payment for a recurring bill (Netflix, for example), and pay off the card at the end of the month.
- Pay on time and in full -- When making a payment, you’ll want to make it equal to the statement balance, or the amount of money you charged up during the previous statement period. If you pay less than the statement balance, the card company will begin charging interest on what remains. Always pay off your card balance in full. Paying interest does not help your credit score, contrary to popular belief.
- Watch your FICO® Score -- One reason why we prefer cards that offer a FICO® Score for free is because being able to watch your score move in real time can be a really motivating factor to manage your account intelligently. We think it’s worth checking in at least once every few months to make sure you’re headed in the right direction.
- Ask for a credit limit increase -- After nine to 12 months of charging up balances and paying them off in full, consider asking the credit card company for a credit limit increase. A higher credit limit can make it easier to keep your balances at less than 30% of that number. In addition, having, but not using, high credit limits shows lenders that you can avoid the temptation to max out your credit limits.
- Consider another card -- As a rule of thumb, we think it’s smart to stick to just one card for the first year or so. In that time, you’ll build up some history, have multiple monthly data points that you always pay on time, and start qualifying for better cards, like cash-back rewards cards or travel cards.
- Keep your account open -- Don’t let your credit card go inactive for too long. Many banks will close an account if it isn’t used for six months or more. By making a small purchase with the card every few months or so, you can make sure that the card stays open and reporting to all three credit bureaus. One big factor that affects your credit score is your average account age, so you want to make sure that your oldest accounts stick around to help boost your score.
13 things to know when you apply for a credit card
When you're applying for a credit card, here’s everything you should know first.
1. How the application process works
The fastest way to apply for a credit card is finding the one you want on the card issuer’s website and clicking the “Apply” link. You’ll need to have the following personal information ready:
- Full name
- Date of birth
- Address (this must be a street address, not a P.O. box)
- Social Security number
- Annual income
- Monthly housing payment
Card issuers also let you apply by mail or in person at one of their branches.
2. Check your credit score first
Ideally, you’ll already have an idea of what your credit score is. If you don’t, there are several services that will tell you free of charge, although the most accurate option is requesting your credit reports from the three credit bureaus.
With an excellent credit score (FICO® Score of 700 or higher), you’ll qualify for most credit cards. Any lower and certain cards could be out of reach. If you’re trying to apply for a credit card with bad credit, you’ll need to carefully select a card that fits your situation.
3. Look for pre-qualification offers to improve your chances at approval
Worried about your chances of getting approved? Try checking what you pre-qualify for on the card issuer’s site.
After you submit some basic info, the card issuer will show you a few credit cards that you’re pre-qualified for, meaning you have a good shot at an approval. There’s only a soft credit check when you do this, which doesn’t affect your credit score.
4. Choose the card that matches your lifestyle
To maximize the value you get from your credit card (or cards), you need to choose based on those with benefits that you can get the most out of.
Perks can be very different from card to card. Take your time researching your options. Check out all of a card’s benefits and make yourself familiar with the spending categories where dollars spent earn a higher bonus rate.
5. You can always get more than one credit card
Applying for credit cards doesn’t need to be a big deal or something you only do once in a blue moon. If you like two cards, you could just get them both, either at the same time or spaced out a few months apart. This is a common strategy people use to earn more back on their spending.
6. Stable income is a must
Along with your credit score, your income is the other crucial factor that determines whether a card issuer approves your application. Before you apply for a new card, you should have a stable source of income that allows you to comfortably cover your bills and still save some money every month.
This is important not just for a better chance at an approval, but also because it helps you avoid credit card debt.
7. If you have credit card debt, pay that off first…
Carrying a balance on a credit card is almost always a bad decision. Annual percentage rates (APRs) are too high for this to make sense financially.
The most responsible way to use credit cards is to pay your statement or current balance in full every month to avoid any interest charges. When you’re dealing with credit card debt, getting it paid off should be your priority. A new credit card would just add fuel to the fire.
There is, however, one exception to this rule.
8. Use a balance-transfer card to pay off debt
Several credit cards offer 0% intro APR rates that let you transfer balances over for a small fee. These can be a great way to save money while paying off debt. You’ll essentially stop being charged interest on all the balances you transfer until the intro period ends.
Intro periods can last as little as six months, but some last well over a year. What’s important is that you’re diligent about paying off your balance instead of seeing these offers as a “get-out-of-debt-free” card.
9. Your credit score will probably decrease a bit
Applying for new credit usually drops your credit score by about 10 to 20 points, Recovery time from that small drop can take anywhere from three to six months.
While that’s not a big decrease, you should consider any future life events that will require a credit check before submitting a credit card application. For example, if you’re planning to get a mortgage or an auto loan, it’s wise to postpone any credit card applications until afterwards to get the best possible loan terms.
That decrease is also why you should only apply for cards you’re confident you can get. If the card issuer denies your application, you’ve taken a hit to your credit for nothing.
10. More available credit could improve your score
Once you get a new credit card, it’s possible for your score to go up due to lower credit utilization.
To calculate your credit utilization, credit bureaus simply take a snapshot of your credit card accounts at a random point in time. It could be right after you’ve paid your bill or in the middle of a billing cycle.
If you use your credit cards frequently or you don’t have much available credit, that can result in high credit utilization that negatively impacts your score. A new credit card adds to your total available credit, and more available credit means your credit utilization goes down.
11. The APR isn’t important
Yes, you read that right.
There are plenty of articles that will tell you “If you plan to carry a balance, you should look for a low-interest credit card.” But if you plan to carry a balance, then you need a new plan.
No credit card is good for carrying a balance except for 0% APR cards during the introductory offer period.
12. Compare the annual fee to the value of the card benefits
Some consumers recoil at the thought of paying an annual fee for a credit card.
I felt that way for a while as well, until I took a closer look at what kind of benefits certain cards were offering. If you’re interested in a specific card, don’t let an annual fee scare you off. On the other hand, it’s also important to check that the value the card provides will outweigh that annual fee.
13. It’s okay if you don’t get an immediate approval
Of course, when you submit your application, you’re hoping for an immediate “Congratulations” message.
Let’s say that doesn’t happen, and you get a message asking you to wait while your application is reviewed. Give it a few days, and you could hear back with an approval. If not, call the card issuer to inquire about your application.
And if you end up with a dreaded denial? You should still call the card issuer to see why, because you could potentially convince them to overturn it.
The world of credit cards can seem complicated, but a little understanding goes a long way. With the information above, you’ll be well-equipped to find the right cards and get the stamp of approval from each card issuer you apply with.
7 credit card tips you should ignore
1. Close credit cards accounts you don’t use
If you haven’t used a credit card in years, you might think that closing it will increase your credit score. In fact, the length of your credit history determines 15% of your FICO® Score, so closing an account can actually damage your score, especially if it’s an old account.
Even if it’s a newer card, the amounts owed category makes up 30% of your credit score, and a big portion of that is your credit utilization ratio. This is your credit card debt divided by your available credit, and the lower that number the better. Having a credit card open that you don’t use increases your available credit and decreases your credit utilization ratio. The situation may be different if you're paying a fee to keep the card open.
2. Never close credit card accounts you don’t use
Most generalizations in personal finance come with a list of exceptions, and this is one of them. You shouldn’t keep a credit card with an annual fee open if you don’t use it. Call the issuer and ask them if it’s possible to downgrade the card to one without an annual fee. If not, close it.
If it’s a credit card you opened recently, closing it could actually improve your credit score. Say you have three credit cards -- one you’ve had for seven years, one for five years, and one for one year -- closing the one-year old account would increase the average age of your accounts.
To protect your credit utilization ratio, transfer the available credit to another card with the same issuer -- or, simply keep your balances on other cards low. Keep in mind that your credit utilization is updated monthly, so as soon as you pay off balances, your score should increase.
3. Every credit inquiry hurts your score
It is true that a hard pull on your credit report can affect your credit score, and having lots of recent inquiries can really bring it down. But it’s not true that your score will go down with every single pull on your credit report. According to FICO, one extra inquiry may not affect your credit at all.
Don’t worry about one or two pulls on your credit report, but do be judicious with applications for credit. The shorter your credit history, the more likely a pull on your credit report will knock your score down.
4. Keeping a balance will help you build credit
This is one of the most costly pieces of misinformation out there on credit cards. You should always pay your balance in full when possible to avoid paying interest fees.
You never have to pay money to build your credit score. Simply paying off your credit card on time every month will do that.
5. You should only have one credit card
It’s true that having only one credit card makes your finances easier to manage, but it isn’t great for building credit. In order to prove to creditors that you’re a responsible borrower, they often want to see that you’re capable of juggling more than one account.
The average American owns 3.4 credit cards, and this is closer to the ideal number. According to Experian, you should have at least two credit cards to maintain a high credit score.
6. Your interest rate will go up if you miss one payment
Payment history is the most important factor in your credit score, and one late payment can drag your score down significantly. However, one late payment may not cause your interest rate to increase.
Credit card issuers can apply a penalty APR, which often reaches 29.99% or more, to the existing balance on your credit card, but under the CARD Act of 2009, they can only do that once your payment is 60 days late. They also have to lower your APR back down to the standard rate after you’ve made on-time payments for six consecutive months.
7. Only use your credit card for emergencies
While using your debit card protects you from going into debt, it’s better to use your credit card for most purchases and pay it off in full each month.
Not only do credit cards often come with rewards, but they have more extensive protections than debit cards. According to law, you are never liable for more than $50 of fraudulent purchases in the case of credit card loss or theft, and many credit cards have a zero liability policy. Depending on how quickly you report it, your debit card liability can be as high as $500, or even more.
Credit cards are also integral to building and maintaining a good credit score. Simply having a credit card you never use won’t help your credit score nearly as much as using one responsibly and paying it off regularly. There’s no reason to fear credit if you know how to use it wisely.
How to avoid credit card fees
At times, it seems that there are almost as many types of credit card fees as there are credit cards, to the point where it’s seemingly impossible to avoid at least a few. These charges include, but are by no means limited to:
- Annual fee
- Foreign transaction fee
- Late fee
- Cash advance fee
- Balance transfer fee
- Finance charges
And that’s just the start of the list. Here are some of the more common fees, what they are and how to potentially swerve around them. Many of these methods are commonsensical, fortunately, but there also a few tricks and tips to keep in mind.
Foreign transaction fee
Once upon a time it was common for credit card issuers to levy a foreign transaction fee. Typically, this charge dinged credit card holders who:
- Bought goods and/or services, directly, outside the U.S.
- Bought goods and/or services from vendors located abroad
Foreign transaction fees vary by card and issuer but tend to be in the low single-digit percentage range -- 3% is a common rate.
People who don’t read their cardholder agreement thoroughly sometimes aren’t aware that they can incur the charge from the comfort of their own living room -- as long as their counterparty is located outside of our borders.
Happily, the no foreign transaction fee credit card has become more prevalent. This is due somewhat to the proliferation of travel credit cards. Logic dictates that a product aimed at travelers be traveler-friendly; tops on the wish list would be no foreign transaction fees.
There’s no real great way around the foreign transaction fee. Of course, the easiest way to avoid it is to simply not apply for a card that carries one.
If you must own plastic that imposes such a charge, and you travel abroad at least occasionally, it’s advisable to complement your fee-bearing plastic with one or two no foreign transaction fee credit cards. Keep the fee-charging one(s) at home, using it (them) only in the U.S., and for domestic purchases.
One of the big money makers for credit card issuers is charging interest (or “finance charges”) on that most popular of activities with the plastic, making purchases.
Interest, expressed as the APR usually kicks in after a certain grace period following a purchase. Typically, this grace period lasts until the new monthly statement date, although not every card follows this convention. It is well worth reading your card’s terms and conditions in order to nail down its policy on the grace period.
Whatever the grace period, if the statement is not paid in full when it passes, interest starts to accrue on the account. The most straightforward way to avoid finance charges, then, is simply to pay your balance on time, every time, assuming you’ve got the resources to do so.
But of course there are circumstances when you might not possess such means. In that case, your go-to option is to shuffle the balance off the card. This is done by a balance transfer, in which -- yes -- the balance on the account is transferred to another card. By moving the statement balance in this way, you can avoid a looming interest charge.
This is usually an unappealing option, though, as issuers typically impose charges for such activity -- although not always. See more on balance transfers and how to escape them below.
Finally, a number of credit cards offer an intro 0% APR, which can last from several months to more than a year before the “real” APR kicks in. This 0% APR is, of course, a sweetener to attract people to the card; it can be very useful for those planning big purchases, or trying to consolidate debt from other cards.
Annual fees tend to be attached to higher-end cards. In a way, they’re the price of admission for the perks and privileges of these goods. A general rule of thumb is that the higher the annual fee, the more feature-packed the card. Annual fees are usually attached to cards with “extras” that fall under these categories:
- Rewards credit cards are cards that accumulate redeemable points that can be exchanged for goods or services
- Travel credit cards lean heavily on perks for those that want/need to be on the road often
- Cash-back credit cards earn a certain amount of statement credit for purchases
There is no “standard” annual fee; that being said, most range from around $50 to $450. You can pay much more for an elite card targeted at big spenders, the most prominent example being the famous American Express Centurion® Card (also known as the “Black Card”). This sets a holder back $2,500 per year… and that’s not counting the one-time $7,500 initiation fee.
The bad news is that once it’s locked in, a credit card’s annual fee can’t really be erased. When the time comes, your issuer will list it as an item on your statement, just like any other charge.
The good news is that it’s possible to escape the annual fee before that lockdown period begins.
More than a few annual fee credit cards waive that charge for a certain period of time -- typically one year -- in order to induce potential owners to apply for the card. Canceling a card before the grace period expires is a fairly straightforward way to get the annual fee out of your life.
Care should be taken here, however. There are numerous instances where canceling a card might negatively impact your credit score.
The late fee is the fruit fly of the credit card world. It’s small but can be very, very annoying.
The concept behind it is simple. Credit card issuers set a minimum payment for each statement. If you pay less than this minimum (or nothing at all) by the time your statement payment deadline rolls around, you are hit with a penalty. Now this isn’t very substantial; even in the worst case it will only come out to a maximum of $38.
The minimum is usually quite minimal. It’s generally calculated as a small percentage of your balance; 1% plus new interest charges is fairly standard. So, for example, if you have a $4,000 balance on your account and have accrued $4.50 in new interest, your minimum would be $44.50.
None of this sounds very expensive. But if you’ve got several cards that you’re tardy with, and this habit rolls on for several months, these charges can really pile up.
That $38, by the way, is not an arbitrary number. By law, issuers can only charge a maximum of $27 for a cardholder’s first transgression, then $38 for further violations over the next six months (this is thanks to the Credit Card Accountability Responsibility and Disclosure, or Credit CARD, Act passed in the wake of the financial crisis of the last decade).
It nearly goes without saying that the most effective way to swat this fly away is by taking care of the minimum payment to your issuer before the due date. This isn’t an obscure or hard-to-calculate number -- your statement will always include the minimum payment.
Holders of multiple cards, however, might find it cumbersome to keep track of all minimums and due dates. A better strategy is to set up regular automatic payments that will cover at least the minimum payment, and be delivered prior to the due date. Since minimum payments tend to be fairly modest, this shouldn’t dent the finances too much.
Also, it’s important to note that by law, a cardholder can legally have one late fee refunded by their issuer every year. The catch -- and it’s not a very big one -- is that they must make a formal request for it. A brief phone call with your issuer should do the trick.
Balance transfer fee
The balance transfer fee is, straightforwardly enough, the charge an issuer imposes on a cardholder transferring a balance from one card to another. Here are several common reasons why someone would do this:
- They have nearly, or entirely maxed out their credit on a particular card.
- They own a card with a lower APR and want to transfer the balance to that card.
- They own a card still in its 0% introductory APR period (or one that has an 0% introductory APR specifically for balance transfers) and want to transfer a balance to it.
There are, of course, restrictions with balance transfers. These vary from card to card, and potentially curtail the following:
- Transfers between different cards from a single issuer. American Express is a leading example of this no-inter-issuer rule.
- Certain types of debt (Bank of America, for example, allows its cardholders to transfer balances from auto, student, or home equity loans; other issuers are more restrictive).
- Transfers from additional cardholders; the main cardholder is the only eligible party.
Issuers typically charge a balance transfer fee to move debt from one card to another. These usually run from 3% to 5% of the amount transferred. In some cases, the balance transfer fee is capped.
Fortunately, there are ways to dance around the balance transfer fee. The first and most direct method is to rack up your bigger balances in a credit card with no balance transfer fee at all. Several cards on the market have $0 balance transfer fees, although these are typically introductory offers for new customers.
If you’ve got a balance you need to move, and your issuer is going to charge you for the privilege, it doesn’t hurt to negotiate the balance transfer fee down. If you’re a cardholder in good standing, you may have a shot at getting a significant discount. It doesn’t hurt to point out your fine record when trying to negotiate a balance transfer fee reduction.
The over-the-limit fee is basically the credit card equivalent of the overdraft fee notorious in checking accounts. It’s the charge your issue will levy when you exceed your credit limit within a statement period.
Once upon a time, the over-the-limit fee was also notorious. Issuers were eager to levy this charge, as it’s not unusual for cardholders to exceed the credit allotted them. The aforementioned Credit CARD Act of 2009 handcuffed their ability to do so. It imposed a set of stringent regulations, chief among which are:
- The customer must opt in to over-the-limit fees (basically, the cardholder allows the issuer to cover his or her past-the-limit spending; otherwise, any purchase above the limit will be declined).
- Opted-in customers who tip over the limit can only be charged a maximum of $25 by the issuer the first time they transgress.
- Opted-in customers can be charged only up to $35 for a second violation.
- These charges can only be levied up to two billing cycles that the balance remains over the credit limit.
- An over-the-limit fee cannot be more than the amount over which the cardholder exceeded their credit limit.
The credit limit is in place for a reason; your issuer has determined that it’s a sensible maximum given your finances and spending habits. So it’s rarely a good idea to approach, let alone exceed, that boundary.
On top of that, even though issuers have been hamstrung by the Credit CARD Act, they can still pull other levers if you’ve tipped over the border. These include raising your APR, lowering your credit limit, and even canceling the rewards you’ve accumulated with the card.
Thanks to the law, though, the over-the-limit fee is one of the easiest to avoid these days. You can effectively eliminate it by doing absolutely nothing, i.e. not opting in to the situation (ah, if we could only zap every problem in life this way).
If for some reason you want or need to push this boundary, it’s wisest to do so on a card that charges no over-the-limit fee at all. Since issuers’ power has been all but grounded with the CARD Act, many don’t bother with it to begin with. Research into which cards have foregone the fee will pay off… although hopefully not on too many occasions!
Beginner credit card FAQ
People who are new to credit cards tend to have some questions about their accounts and the features their card offers. Here’s a quick FAQ, written for someone who is just getting started with their first credit card.
What happens if I make a late payment?
Being late on a payment can have some serious consequences, so it’s something you want to avoid at all costs.
First, almost all card issuers charge a late fee for being late by as little as one day. Second, being more than 30 days late might mean the late payment is reported to the credit bureaus, which can negatively affect your credit score. Finally, the interest rate on your credit card may be raised to the “penalty APR” if you make a late payment, which means your interest rate could jump as high as 30% per year.
One easy way to avoid late payments is to set up a payment reminder so that the card issuer sends you a text message or email when a payment is due. Alternatively, you can set up automatic payments each month to avoid the possibility that you forget a payment.
What’s a cash advance?
Some credit cards allow you to use them at an ATM to withdraw cash as if the credit card were a debit card. Don’t use this feature. Cash advances typically carry a flat fee ($5 to $10 per advance), and interest will begin accruing immediately on the cash advance. Frankly, we’d suggest ignoring this feature all together, as it can be a financial trap.
Do you have to pay interest on a credit card balance?
No. In fact, we’ve never paid interest on our credit card balances. The key is paying off your balance in full each month. When you receive your statement, make sure to pay the listed “statement balance.” As long as you pay this amount in full, you won’t be charged any interest on your balances.
Cash advances are the only exception to this rule. Cash advances begin accruing interest immediately, which is one of many reasons why we take a hard stance on avoiding them.
Will a cosigner help me get approved?
Credit card cosigners are mostly a thing of the past. Most major issuers have downplayed or downright eliminated cosigners on credit card applications. That’s because secured credit cards enable virtually anyone who can handle a credit card to get a credit card, regardless of how bad their credit might be.
What is an authorized user?
An authorized user is someone who has the ability to make charges to your credit card account, but has no legal liability to repay the balance. Authorized users receive a card tied to your credit card account, with their own name on it. When they make a purchase, it will be added to your statement balance. Because authorized users can charge balances to your card, yet have no responsibility to pay it off, we recommend that card users avoid adding an authorized user to their accounts. It’s a lot of risk to take on, with little to no payoff for the main cardholder.
Does applying for a credit card hurt your credit score?
Yes, but not by much. One factor that makes up approximately 10% of your credit score is the number of credit inquiries on your credit report. A credit inquiry occurs when a lender pulls your credit report to make a credit decision. Inquiries only negatively affect your score for one year, and they completely fall off your credit report after two years.
From our experience, an inquiry tends to move a credit score by an amount that’s so small it’s hard to really measure. (It’s not unrealistic for a credit score to go up and down by 10 or 20 points from month to month even if there are no big changes or new inquiries on your credit report.)
A few inquiries in the span of a year are no big deal. Having 15 credit inquiries in a year could be a really big problem, however. Don’t avoid opening a credit card because you’re fearful of the impact to your score, but you shouldn’t open several credit cards in a short period of time, since it could negatively impact your score, and make it difficult to get approved for other types of credit.
How much income do I need for a credit card?
Most issuers don’t disclose income requirements for approval, with one exception: Capital One® Secured Mastercard® specifically says that an applicant will be denied if their monthly income does not exceed their monthly rent or mortgage payment by $425 or more.
Thus, if your mortgage or rent payment is $800 per month, you’d need pre-tax income of at least $1,225 to get approved for the card. (Income is just one factor that goes into the credit decision, but most secured cards are easy to get if you meet very low income thresholds.)
Unsecured cards typically require more income than secured cards, but they don’t make this information available to the public.